We all have hopes and aspirations— it may be having a luxury car to drive around for some, while it may be as simple as having a place to call home. These dreams boil down to having money since you’ll surely need big funds to fulfill them. However, with the limited income that your 9-5 job gives, you’ll break your back working tirelessly, and you’ll still have a hard time getting these things.
Fortunately, this digital era offers a solution to almost everything. Investing your money in various investment vehicles is an infallible way of not just increasing your income astronomically. Yet, to be successful in this kind of venture, you need to be a smart investor, and this article will help you be one.
If you are ready to make a killing from investing in the world of stocks, stay tuned! Here are the golden rules of investing that will have you close profits and avoid throwing a wrench into the entire exercise:
1. Never lose money
This seems pretty straightforward, but there’s no other way around it. After all, who wants to lose money when the very purpose of investing is to grow it, right?
Billionaire Warren Buffett, the Oracle of Omaha himself, has made this rule. He has set two commands in his investing journey:
- Rule No.1 is never to lose money.
- Rule No.2 is not to forget the first rule.
Simple, isn’t it? But indeed, it is a piece of timeless advice, though.
However, Buffett didn’t mean this literally, so don’t get these rules twisted. The stock market is volatile, so it’s undoubtedly not hard not to lose money on it.
By saying “never lose money,” Buffett means you should not be blinded by what your investments could potentially make. Keep in mind the risks that come with it too.
2. Start Small and Think Big
Perhaps, you have heard this countless times— the big things commence from small beginnings. When it comes to risky stock investing, the best thing you can do is to start small. Don’t bring out a big amount of money while you’re still testing out the waters.
Begin by directing a small portion of your monthly income (about $100, $500, or $10000 to the stock market. However, it would help if you learned about the companies you want to invest in.
Keep investing small until you become good enough at identifying the companies to buy shares of. Eventually, you will acquire an excellent trading strategy that ensures you’ll make it big in the stock market.
3. Invest Only in Businesses That You Understand
As point two mentioned, you need to learn the business before investing in it. This is because you are not investing for profit alone but for value. Hence, before you invest in a company, you need to grasp how they make money, the risks they have, as well as their strength.
By chance you can’t understand a thing about the business, let go and proceed to the next one!
In the early years of Google, Buffett had an opportunity to give out his money before they came out with an initial public offering (IPO). Yet, he declined.
Buffett stated that he could not understand how a search engine could make profits, so he decided not to risk his money on this new thing that he could not understand.
The great investor’s decision costs him a lot of profits, especially since Google’s parent company is currently valued at $1.474 trillion. Nevertheless, this technique is what actually brought him to where he is right now. It is what saved him from much bigger losses over the years.
4. Think Like an Owner
When you buy stocks, you own a portion of the business. This means the business you’re investing in becomes your business. So, you need to act like a part-owner of it.
Unfortunately, a lot of people view stock investing as some sort of a gamble, forgetting that real corporations are behind them.
Now, “how could I think like an owner?” — if you may ask.
Thinking like an owner means you need to analyze stock values and fundamentals. You also need to get information and opinions on how the business would perform in the future.
Businesses that don’t have an excellent management team are bound to fail. So, avoid companies that don’t have an excellent management team.
5. Don’t Try to Time the Market
This is one of the most common investment mistakes you should refrain from. Such a venture always fails as a money maker.
Market timing can indeed be beneficial sometimes, but it has its own costs. For instance, an investor who is trying to time the market sells off his equities and sets his money to purchase more conservative investments because he believes that the market will go down.
However, the stock market rocketed to a high-performing period, making him miss the top months. This only shows that poor market timing is nothing compared to buying and holding.
It’s pretty hard to predict when the market will decline or reach new heights. And history tells us that no one has ever managed to time the market despite checking numerous market cycles thoroughly.
6. Always Invest Only Excess Cash
The stock market is constantly fluctuating. Although there’s a chance you’ll make a profit; there’s also a probability that you’ll burn your hard-earned money. So, never ever invest all your money in the stock market!
Take the risk, but do not risk all. Otherwise, you’ll have nothing left to start again. If you want to invest, make sure to allot funds that you can afford to lose. Avoid using the precious cash you need for day-to-day survival.
7. Be Disciplined
Obviously, you will need giant-sized patience and discipline in investing in the stock market. Don’t jump from one strategy to another, copying different investors. You’ll end up losing money big time.
Instead, develop an effective, long-term strategy, identify stocks worth purchasing, and stick to them! After determining the target price and stop-loss— once again, stick to it. Remember to always adhere to your plan on how much to invest and at what rate.
When the market turns extremely volatile, it becomes extremely hard to stick to the plan because your emotions would surely bring turmoil to the back of your mind. Regardless, force yourself to keep a calm mind. Don’t sweat it.
8. Diversify Your Portfolio
Diversifying portfolios will always be part of a good investment strategy as it gives investors a cushion in case an investment fails miserably. Not putting all your eggs in one basket minimizes the risk of losing your money. This is a day saying that investors use, and they indeed are using it for a good reason.
So, how exactly do we do it?
It’s by investing in instruments and assets. If you invest in an index fund, you can add a real estate fund to your portfolio. Split up your money on various industries.
9. Lock-in Profit Often
Another golden rule of investing is locking in profit frequently because it allows you to earn regular income. The stock market is often moving up and down, so it only makes sense for you to make some bucks if you know how to play the game.
